An e-mail conversation about Social Security

For your reading enjoyment, here is my response to a note from a friend about Social Security reform. His note to me is below my comments:
Hey Luis,
The system does not work like a private insurance system and privatization is definitely the best course of action. Here are some of what I think are the major arguments....
1) There is no insurance and no contract and no guarantee. The supreme court has ruled that social security tax revenue is just general revenue to the government and the government can cancel benefits or even the whole program any time they want to.
2) It's just a ponzi scheme, transferring money from people who are working now to people who don't work now. Furthermore, people who are working now are creating a "surplus" (which just means excess taxation or theft by the government) which the government then just spends on whatever it spends all its other tax revenue on like bridges to nowhere, the war in Iraq, etc.
3) Since there is a surplus right now, it masks how big the "true" federal deficit is, allowing Congress to waste even more money.
4) "Levelling the playing field" is A) NOT a proper function of government and B) highly detrimental to the performance of our economy
5) Your point about it applying to salary and not investment income is a point I would make too. Raising this tax encourages people NOT to work. And those people who would be most effected by raising the tax are those most likely to be able NOT to work.
6) Back to "levelling the playing field", how much more "level" do you want it? As it is, the top 10%, approximately the same people who would be effected by raising the cap, pay 2/3 of the total federal income tax. The bottom 50% pay about 3%! Raising the tax is further unlevelling the playing field. It's just government playing Robin Hood, and I remind you that although Robin Hood comes across as a nice story, he was just a thief.
7) Due to typical patterns of life expectancy and career paths, the Social Security system discriminates against minorities (they tend not to live as long) and women (they tend to have fewer years of working). This is because Social Security benefits can not be beqeathed to children and can only be taken by a spouse if the spouse gives up his/her own benefits. In other words, when someone dies, the government just gets to keep a bunch of money. If there were private accounts this money could be handed down to children, thus helping keep the next generation out of poverty. SOCIAL SECURITY KEEPS POOR PEOPLE POOR.
There's more but I'll save it for another time.
I enjoy the debate. Let's keep it going!
Ross
[This was my first note to Luis]
In a message dated 3/9/2005 9:19:29 AM Eastern Standard Time, Rossputin writes:
Lifting the cap would be an enormous tax increase on productive members of society, putting their (our) marginal rate over 50% for people in most states.
There are many problems with Social Security beyond its financial troubles. Also just because it's not going bankrupt tomorrow does not mean we should ignore the fact that it will go bankrupt if we don't do something about it.
Finally, I believe that providing retirement for everyone is simply an invalid function of government.
[This is Luis' note to me:]
In a message dated 3/9/2005 8:28:38 AM Mountain Standard Time, Luis writes:
Hi Ross,
The SSS does not "provide retirement for everyone". Only to those who have paid their substantial premiums for at least ten years. The system works much like a private insurance system.
The "enormous tax increase" would only serve to level the field with those whose annual earnings are $90K or less and pay the full premium.
And it would only apply to "earned income". Those wealthy individuals who derive most of their income from investments would not be touched by this tax anyway.
I agree that there are many problems with the SSS, and that it is a good thing to start fixing them now. But privatization is not the solution.
Keep up the good work.
Luis